UK: Weekly Tax Update - February 23rd, 2015

Last Updated: 26 February 2015
Article by Tina Riches

1.General news

1.1 Transitional guidance on the introduction of LBTT

HMRC has published guidance on transitional arrangements for moving from Stamp Duty Land Tax (SDLT) to the Land and Buildings Transaction Tax (LBTT) on 1 April 201 and how these rules affect Scottish land transactions. The guidance sets out circumstances when SDLT will continue to apply.

The introduction to the guidance comments:

Exceptionally, SDLT will continue to apply to transactions where the effective date is on or after 1 April 2015, where the subject-matter of the transaction consists of or includes interests in land situated in Scotland and which are either:

a) effected in pursuance of a contract entered into and substantially performed on or before 1 May 2012 (the day on which the Scotland Act received the Royal Assent) or

b) effected in pursuance of a contract entered into on or before that date and not excluded by any of the following:

  • any variation of the contract, or assignation of rights under the contract, after that date,
  • the exercise after that date of any option, right of pre-emption or similar right, or
  • an assignation, sub-sale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance.

www.gov.uk/government/publications/transitional-land-and-building-transaction-tax-guidance

1.2 European Parliament tax rulings and avoidance committee

The European Parliament has voted to form a special committee to look into EU member states' "tax rulings and other measures similar in nature or effect" as far back as 1991. It will also review the way the European Commission treats state aid in member states and the extent to which they are transparent about their tax rulings. It will also seek to ascertain the negative impact of 'aggressive' tax planning on public finances and is due to come up with recommendations for the future.

The 45-member strong tax ruling committee is being set up for an initial period of six months in the wake of a series of investigations launched by the European Commission into tax rulings for multinational companies in Luxembourg (Fiat, Amazon), Ireland (Apple), Belgium and the Netherlands (Starbucks). The Economic and Monetary Affairs Committee plans to draw up an 'inquiry' report (non-legislative, own initiative) on tax rulings will now lapse, because its remit would have overlapped with that of the special committee.

Companies will no doubt be keen to see the retention of a system of rulings retained, as these can provide certainty where the law is perhaps unclear.

www.europarl.europa.eu/news/en/news-room/content/20150206IPR21203/html/Parliament-sets-up-a-special-committee-on-tax-rulings

1.3 HMRC Charities Digital Service launched – for 'fit and proper persons'

HMRC has launched its new digital service for charities, which can register online with HMRC to apply for recognition as a charity for tax purposes. The service has in-built checks and guidance to help organisations provide the right information and supporting documentation, so HMRC can confirm their tax status.

The new service should minimise mistakes so that applications are less likely to be returned. Given that there are currently 15,500 new charity registrations per annum this should also reduce work for HMRC.

To get recognition and hence certain tax reliefs a charity must be:

  • based in the UK, EU, Iceland, Liechtenstein or Norway;
  • established for charitable purposes only;
  • registered with the Charity Commission or another regulator, if applicable;
  • run by 'fit and proper persons'; and
  • recognised by HMRC.

The new service and information about registering a charity's details is at:

www.gov.uk/charities-and-tax/get-recognition

The related guidance on 'fit and proper persons', which was updated in 2014, quite rightly excludes categories such as those who have been involved in tax fraud. However, it continues to exclude anyone who has 'been involved in designing and /or promoting tax avoidance schemes'. This does not seem to be defined and seems to apply at any point, ie even if carried out in the past. This element of retrospectivity in rules developed by HMRC without Parliamentary scrutiny continues to be a concern. The fit and proper guidance is at:

www.gov.uk/government/uploads/system/uploads/attachment_data/file/392977/model-dec-ff-persons.pdf

2.Private client

2.1 Draft legislation: pension flexibility – annuities

HMRC has published draft Finance Bill legislation on the proposal for payments of annuities to beneficiaries to be made tax free on the death of an individual under 75, subject to certain conditions.

The draft clause and Schedule are intended to amend the existing pension tax rules in Part 4 of FA 2004, which were recently amended by the Taxation of Pensions Act (TOPA) 2014. TOPA 2014 received Royal Assent on 17 December 2014.

The draft clauses change the existing provisions concerning who can receive payments from an annuity on the death of a member. The changes allow anyone, including non- dependants, to receive these payments. The Schedule will also amend ITEPA 2003 to allow payments of these beneficiaries' annuities to be tax-free on the death of an individual before age 75. The facility for a beneficiary to take a tax-free annuity following the death of the member will be particularly useful where the member had not himself taken out an annuity before death. These changes are similar to those made in respect of payments of income withdrawal from a drawdown fund on the death of an individual in TOPA 2014.

www.gov.uk/government/publications/draft-legislation-pension-flexibility-annuities

2.2 HMRC pension schemes newsletter

HMRC has issued Pension Newsletter 67 aiming to address some of the additional points raised on the pension flexibility rules, following the publication of its Pension Newsletter 66 in December 2014.

Subjects covered include:

  • Pension flexibility.
  • Payments.
  • PAYE and reporting.
  • Tax-Free payments.
  • Pension flexibility guidance.
  • Draft Finance Bill legislation.
  • Issuing a P45.

www.gov.uk/government/publications/hm-revenue-and-customs-pension-schemes-newsletters

2.3 Court of Appeal decision in Eclipse Film Partners No 35 LLP

Court of Appeal's decision in Eclipse Film Partners No 35 LLP was that the First-tier and Upper Tribunals were correct – the partnership carried on a business, but it was not a trading business. As a consequence of Eclipse undertaking an investment rather than a trading business, interest paid on loans to invest in the partnership was not tax deductible for the investors.

On the need for speculative aspects for a trade to be seen to exist, the Court of Appeal summary comments:

"Mr Aaronson criticised the FTT's statement in paragraph 403 that the transactions entered into by Eclipse did not have the speculative aspect which the FTT would expect to see in trading transactions. He submitted that they were wrong to view speculation as a critical ingredient of trade. In Johnston v Heath [1970] 3 All ER 915 at 922 Goff J said that he was far from persuaded that an adventure in the nature of trade in this context necessarily connotes that there must be risk. We agree that carrying on a trade does not necessarily require that there must be risk. It is apparent, however, from paragraph 398 of their decision that the FTT's view was that speculation is an indication of trade, not that it is essential. That is a perfectly legitimate approach."

www.bailii.org/ew/cases/EWCA/Civ/2015/95.html

2.4 HMRC list of professional bodies

HMRC has updated its approved list of over 3,000 professional bodies and learned societies whose annual membership fees when paid by individuals are tax-deductible, if membership is necessary or helpful for a job. It is worth checking this list occasionally as there are periodic changes. The latest addition is the Chartered Institute of Architectural Technologists.

In addition the latest version shows the 'British Institute of Golf Course Architects' has changed its name to the European Institute of Golf Course Architects.

www.gov.uk/government/publications/professional-bodies-approved-for-tax-relief-list-3

2.5 Married couples tax break – online registration of interest

HMRC has announced that the registration for the new Marriage Allowance for married couples and those in civil partnerships is now open, although at present this is merely for individuals to sign up online to express an interest. They will receive an email confirming when applications are open – this is expected to be after 6 April 2015. However, people can register at any point in the tax year and still receive the full benefit of the allowance, which will be given through the tax code for those in PAYE.

The tax break, which starts from 6 April 2015, is worth up to £212 a year for each couple. A spouse or civil partner who does not pay tax above the basic rate of income tax can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner, providing the recipient only pays the basic rate of income tax. Only one person in a couple can apply online to transfer the allowance to their spouse or civil partner.

The two stage process of registering an interest and then applying is being introduced to allow HMRC to stagger applications so that it can better manage demand.

The Government expects more than 4 million married couples and 15,000 civil partnerships born after 6 April 1935 to be eligible. Couples born before 6 April 1935 already benefit from the married couples allowance.

Register interest at:

www.gov.uk/marriageallowance

To view the full update please click here.

We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2015

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